DPU gives $168m offshore wind bonus to utilities

THE MASSACHUSETTS DEPARTMENT OF PUBLIC UTILITIES approved multibillion dollar offshore wind contracts with Vineyard Wind on Friday and, over the objections of Attorney General Maura Healey, authorized the state’s three utilities to collect an additional $168 million from ratepayers just for carrying the contracts on their books.

The contract approvals had been expected, both for environmental and economic reasons. But Healey and other groups fought hard against the bid by Eversource Energy, National Grid, and Unitil to collect 2.75 percent of the total contract value as compensation for overseeing the contracts. The decision will likely influence the compensation the utilities will receive for hydro-electric contracts ($406 million) and future offshore wind contracts.

“This order sets a dangerous precedent that could end up costing ratepayers hundreds of millions of dollars in unnecessary charges. We’re deeply disappointed in the DPU’s decision,” said Chloe Gotsis, a spokeswoman for Healey.

The DPU decision also lacked transparency. The debate centered only on the percentage remuneration the utilities should receive and didn’t include the actual dollar amounts. It was never clear why the dollar values were omitted, as the utilities and Vineyard Wind pointed fingers of blame at each other and Healey’s requests to the DPU to make the information public fell on deaf ears.

CommonWealth estimated the utility compensation using information available in the contracts themselves. The 20-year offshore wind contracts are worth $6.1 billion, and 2.75 percent of that amount adds up to nearly $168 million.

Utilities have long received compensation for negotiating renewable energy contracts on behalf of their Massachusetts customers, but typically the compensation amount, in the form of a percentage that had risen as high as 4 percent, was written into state law. With the Vineyard Wind procurement, the Legislature authorized the DPU to grant the utilities up to 2.75 percent of the value of the contract – wording that left the agency some wiggle room on how much compensation was warranted.

In briefs filed with the DPU, Healey and others said the utilities deserved no compensation. The attorney general said the utilities are guaranteed full cost recovery from their customers and pointed out that the companies provided no evidence that the contracts would impair their credit ratings. The Conservation Law Foundation took exception to the argument by the utilities that they could reject the contract if the remuneration rate was less than 2.75 percent.

The DPU said in its decision that the legislation authorizing the contracts provided no guidance on how the remuneration issue should be decided. “In the exercise of our discretion, the department is mindful that establishing a remuneration rate below 2.75 percent could send a negative signal to the financial markets and credit rating agencies regarding regulatory consistency in our review of long-term renewable energy contracts,” the decision said.

Under terms of the contracts negotiated by the Massachusetts utilities and Vineyard Wind, the energy company will be required to open an initial 400 megawatt wind farm off the coast of Massachusetts by January 15, 2022, and a second wind farm of the same size on January 15, 2023. The company said it would move the startup date for the second wind farm to May 31, 2022, if the project secures additional funding in markets operated by the region’s power grid operator to assure sufficient supplies of electricity three years in the future.

The contract price for the first wind farm starts tat 7.4 cents a kilowatt hour and rises 2.5 percent a year. The contract price for the second wind farm starts at 6.5 cents and also rises 2.5 percent a year. The average nominal cost over the 20-year life of the contract is 8.9 cents a kilowatt hour, which is about one-third the price of renewables in previous solicitations. Utility officials speculated that the contract would save ratepayers nearly $1.3 billion in energy costs over the 20 years.

It was generally agreed by all parties that the wind farms will help reduce winter price spikes that occur when the region is hit by an extended cold spell that makes it difficult for electricity generators that run on natural gas to acquire sufficient fuel.

The DPU decision was released just before 5 p.m. on Friday, just before a holiday weekend. The Baker administration put out a press release on the decision Tuesday afternoon. Officials at Eversource could not be reached for comment. A National Grid spokesman said he was trying to gather some information. Vineyard Wind officials said they could not comment.